BUSINESS STATISTICS NOTES BCOM 1ST YEAR
QUESTION: Define the term “Statistics” and discuss its use in business and trade. Also point out its limitations?
Answer:
Statistics are numerical statement of facts capable of analysis and interpretation as well as study of the methods used in collection, organization, presentation, analysis and interpretation of numerical data.
Statistics word has been derived from
- Latin word ‘Status’
- Italian word ‘Statista’
- German word ‘Statistik’
- French word ‘Statistique’.
STATISTICS IN PLURAL SENSE
It refers to group of numerical data collected in a systematic manner with some definite objective.
ACCORDING TO HORACE SACRIST
“Statistics is the aggregate of facts, affected to a marked extent by multiplicity of causes, numerically expressed, enumerated or estimated according to a reasonable standard of accuracy, collected in a systematic manner, for a predetermined purpose and placed in relation to each other”.
STATISTICS IN SINGULAR SENSE
In singular sense, statistics refers to a science of all those statistical methods and techniques which are related with various stages of statistical analysis.
ACCORDING TO CROXTON AND COWDEN
“Statistics may be defined as the science of collection, presentation, analysis, interpretation of numerical data.”
USE OF STATISTICS IN BUSINESS AND TRADE
A good businessman makes a good sales prediction keeping in view all types of seasonal and market variations. The big industrial units test the quality of raw materials they purchase and the finished goods they sell by methods of sampling. The businessmen can also study the additional requirements which propels people to like their products. The businessmen give sale-incentives for their agencies in the form of higher commissions, price-cuts etc. It is possible only if relevant data are available. Thus in modern business, it is due to availability of data, that suitable policies can be followed in case of production, investment, marketing and sale management.
Following are of the typical application areas:
Use for Quality Management (SQC): Statistical quality control (SQC) helps in separating the assignable causes from the chance causes. SQC techniques also help in reducing and stabilizing process variation that may reduce cost significantly.
Use in Process Capability: It enables us to find out whether the enterprise is capable of meeting customer specification. If it is not meeting customer requirements, then management has to take decisions regarding the modernization of plant, change the technology etc. to achieve process capability. Statistics plays a crucial role in this field.
Use in Finance area
(a) Financial ratio analysis: Key financial ratios are worked out, by using the Balance sheet and income statement data, to know the financial health of an enterprise, comparative statistical analysis reveals the performance of the company in the past years and the emerging trend in the future.
(b) Cash forecasting: Financial analyst has to forecast cash requirement to meet short-term obligations eg payment of salary, working capital, payments to suppliers etc. Statistical analysis helps in working out realistic cash forecasting.
Use in Materials Management
(a) Inventory level: By using appropriate statistical methods one can maintain in optimum inventory level of raw materials and finished products and thus savings are made which impact the profit.
(b) Quality assessment for incoming and outgoing items: Statistical sampling techniques help in ensuring quality of incoming and outgoing items. Raw materials and the other items are checked for quality to meet customer’s needs and inspection of finished products is done on sample basis to reduce complaints from customers.
Use in Marketing
(a) Marketing research: It provides solutions to various problems involved in marketing goods, services or ideas. In this context systematic collection, analysis and interpretation of marketing data is done by using statistical methods. Marketing decisions involve the introduction of new product, reaction of consumer to price hike, effectiveness of advertisement comparison etc.
(b) Demand projections: Short-term and long term demand projections are required for the company’s products and services. These projections are required both for domestic and international markets. Statistical surveys and analysis of the past time series data relating to industry provides reliable sales and demand projections.
LIMITATIONS OF STATISTICS
Undoubtedly, statistics has universal applicability, but there are also some facts which prove as limitations of statistics.
ACCORDING TO NEWSHOLME
“Statistics must be regarded as an instrument of research of great value but having severe limitations which are not possible to overcome and as such need our careful attention.”
The limitations of statistics are as follows:
QUALITATIVE ASPECTS IGNORED
Statistics consider only those facts that can be expensed quantitatively. It means statistics do not record qualitative aspects of the data. The important variables like honesty, integrity, loyalty etc. cannot be studied under the scope of the statistics. To study the qualitative data, first it must be converted into the quantitative form, and then the technique of statistical analysis can be applied on it.
ACCORDING TO HORACE SACRIST
“Some phenomenon cannot be quantitatively measured, honesty of resourcefulness, integrity, goodwill, all important in industry as well as in life generally, are not susceptible of direct statistical measurement.”
STATISTICS DEALS WITH AGGREGATES ONLY
The results of the statistics are not applicable on the individuals. This is so because statistics cannot deal with the single, isolated and ungrouped data. It deals with set of observations only.
EXAMPLE: The finding of per capita income of Punjab does not mean every person residing there has same income. Some people may have more and other may have less. This shows that statistics do not deal with individuals and its results are applicable on group only.
STATISTICS DEALS WITH AVERAGES ONLY
ACCORDING TO WI KING
“Statistics largely deals with averages and these averages may be made up of individuals items radically different from each other.”
The above statement truly reflects that statistics deals with averages only. In fact, statistics is not a pure science as like other physical sciences. The reason being the phenomenon taken under the study is affected by multiplicity of causes. And it is impossible to study the effect of each factor individually.
STATISTICS CAN BE MISUSED
Statistics can be easily misused if the wrong person is using it. There is lots of personal judgment or biasness involved in it while:
- Selecting the analysis technique
- Selecting the sample
- Deriving the results.
A statistician or researcher can misuse the data collected
- If he has no proper knowledge to use it
- If he is inexperienced
- By applying biased analysis techniques
- By choosing favorable items in the sample.
STATISTICS DOES NOT REVEAL THE ENTIRE STORY
Statistics do not provide solutions to the all kinds of the problems in all circumstances. There are so many problems which are affected by many factors like culture, religion, history, philosophy, character etc. Statistics are not of so much help to study all such problems.
STATISTICS CAN BE USED BY EXPERTS ONLY
The techniques of the statistics are not easy to use. These can be used by experts only who are having sufficient knowledge of applying the techniques. Also the researcher must possess the experience of collecting the data from the adequate or correct sources.
STATISTICS RESULTS ARE NOT ALWAYS DEPENDABLE
Statistics is the science of averages. All the results are found out with the help of the probabilistic analysis techniques. The findings are not purely correct. The outcomes are also not applicable in all the situations. This proves as one of the serious limitations of statistics.
ACCORDING TO CONNOR
“Statistics deals only with measurable aspects of things and therefore can seldom give the complete solution to a problem. They provide a basis for judgement but not the whole judgment.”
ONLY A MEAN NOT AN END
ACCORDING TO CROXTON AND COWDEN
“It must be assumed that the statistical method is the only method for the use in research; neither should this method be considered the best attack for every problem.”
The tools of statistics are supposed to be only a means to understand any given problem rather than a method to solve any problem.